The US created a text-message social network designed to foment unrest in Cuba, according to an investigation by the Associated Press news agency.
ZunZuneo, dubbed a "Cuban Twitter", had 40,000 subscribers at its height in a country with limited web access.
The project reportedly lasted from 2009-12 when the grant money ran out.
The US is said to have concealed its links to the network through a series of shell companies and by funnelling messages through other countries.
The BBC's Sarah Rainsford in the Cuban capital of Havana says there is a thirst for information on the island, which has no independent media.
'Bogus advertisements '
There has been no official Cuban government reaction to the story.
The scheme was reportedly operated by the US Agency for International Development (USAID), a federal international development organisation run under the aegis of the Department of State.
On Thursday, White House spokesman Jay Carney confirmed the US government's involvement in the programme, saying it had been debated by Congress and passed oversight controls.
He said: "These are the kinds of environments where a programme like this and its association with the US government can create problems for practitioners and members of the public.
"So appropriate discretion is engaged in for that reason but not because its covert, not because it's an intelligence programme, because it is neither covert nor an intelligence programme."
USAID spokesman Matt Herrick told the BBC the agency was proud of its work in Cuba and that it worked to help people everywhere to exercise their rights and connect them with the outside world.
However, the report could undermine USAID's longstanding claim that it does not take covert action in the countries where it operates aid programmes.
ZunZuneo, slang for a Cuban hummingbird's tweet, was reportedly designed to attract a subscriber base with discussion initially about everyday topics such as sport and weather.
US officials then planned to introduce political messages in the hope of spurring the network's users, especially younger Cubans, into dissent from their communist-run government, the Associated Press reports.
Executives set up firms in Spain and the Cayman Islands to pay the company's bills and routed the text messages away from US servers.
A website and bogus web advertisements were created to give the impression of a real firm, the Associated Press reports.
Senator Patrick Leahy, chairman of the foreign operations appropriations subcommittee, said the ZunZuneo revelations were troubling.
One former subscriber, Javiel, told the BBC in Havana that ZunZuneo sent him sports news for free by text message.
He said he had no idea the service was funded by the US government and never received anything remotely political.
Javiel said that at some point over a year ago the messages stopped.